Best way to invest 20k lump sum

nickohorny

Hello experienced investors.

I have been sitting on roughly 20,000 of savings for a while now as I know nothing of investment so recently been preparing a plan. I am not sure the best way to invest it.

I was thinking of diversifying it like so:

5,690 (full alllowance) into a cash ISA

6,000 into Stocks & shares / Funds with a mixed portfolio, roughly 4,500 over larger cap stocks & funds and around 1,500 on riskier smaller cap / AIM stocks.

2,000 in gold bullion for long term safety.

The rest maybe just keep for incase I need it ever, maybe just keep it on an internet savings account with my bank????

I am new to this, and constantly thinking of the best way to invest. I want to be safe, but also want to be able to take a small risk with some shares as I stated.

Any advice would be most welcome. THAAAANKS! :beer:

** Would investing 6,000 in stocks be worth it? Would it be best to buy a large portfolio such as put 500 in a diff stock, or keep it minimal and purchase into just a selected few? **

ColdIron

The cash ISA allowance is £5,760 2013/14 and £5,940 2014/15

While I am quite pro gold bullion I wouldn't consider it 'for long term safety'

ChesterDog

ColdIron wrote: »

The cash ISA allowance is £5,760 2013/14 and £5,940 2014/15

While I am quite pro gold bullion I wouldn't consider it 'for long term safety'

Very true. It is safe in the sense that it will still actually be there (probably) but you cannot rely on it to maintain its value. Some would say it has a place in a broad and diversified portfolio, but you are a long way from that at the moment.

kidmugsy

Rather than gold bullion it might be attractive to buy gold sovereigns: they are coin of the realm and so go free of capital gains tax, which could be handy if you build up your holding over the years. Also a bunch of sovereigns is "divisible" - you can sell them off one at a time if you want cash instead. On the other hand, the "spread" - the difference between the buying and selling price - is quite big.

P.S. I've been entertaining the idea of buying some AIM shares for a few weeks now, but have decided that they're too risky for us. But you, I'd think, are younger.

nickohorny

Thanks for all the advice, much appreciated.

I am 30, not sure if that is considered young in the investment world??

I am open to taking some higher risk stocks, I just want to make sure I am spreading it all well over various investments.

- Is 6,000 enough to invest in stocks and shares? With that, is it best I buy into quite a few or just around 6 for example?

- If I was to put 1,500 into AIM stocks, would it be best I buy into 3 for 500 each or 7/8 at 200?

I have read about diversifying my investments, so am trying to make sure I am doing that well with the 20,000 in total.

kidmugsy

nickohorny wrote: »

I am 30, not sure if that is considered young in the investment world?? IT IS BY ME

- Is 6,000 enough to invest in stocks and shares? With that, is it best I buy into quite a few or just around 6 for example?

- If I was to put 1,500 into AIM stocks, would it be best I buy into 3 for 500 each or 7/8 at 200?

£6k is OK for stocks and shares, but the obvious way to diversify is not to buy individual shares but to buy a "fund" or ETF or Investment Trust instead. One cheapish route that also automatically gets you into small companies is the Investment Trust that says "The Trust’s portfolio replicates in full the constituents and weightings of the FTSE 350 Index and also holds most of the constituents of the FTSE SmallCap Index."
http://www.aberdeenuktracker.co.uk

Moreover, a cheap way to hold it is through its manager's share plan (top of p44) where you'll see "Initial Admin: Nil. Annual: Nil. Purchase: Nil. Sale: £10. Transfer Out: £35. Switch: £10." It will also do dividend reinvestment for you.
http://www.theaic.co.uk/sites/default/files/statistics/attachment/AICStats31Dec2013.pdf

If higher rate income tax, or capital gains tax, are likely to plague you, you could hold it in an S&S ISA instead (e.g. scroll down a bit further).

You may not be surprised to learn that I've been contemplating recommending this very strategy to my wife.

Linton

nickohorny wrote: »

Hello experienced investors.

I have been sitting on roughly 20,000 of savings for a while now as I know nothing of investment so recently been preparing a plan. I am not sure the best way to invest it.

I was thinking of diversifying it like so:

5,690 (full alllowance) into a cash ISA

6,000 into Stocks & shares / Funds with a mixed portfolio, roughly 4,500 over larger cap stocks & funds and around 1,500 on riskier smaller cap / AIM stocks.

2,000 in gold bullion for long term safety.

The rest maybe just keep for incase I need it ever, maybe just keep it on an internet savings account with my bank????

** Would investing 6,000 in stocks be worth it? Would it be best to buy a large portfolio such as put 500 in a diff stock, or keep it minimal and purchase into just a selected few? **

My view on your proposals...

Do you have a separate emergency fund in accessible cash? If not £8K is a sensible amount. Make sure that it is in instant access - if you lose your job or need cash quickly you dont want to be a forced seller of investments.

Are you contributing to a pension, particularly a pension into which the employer contributes? If not that should take precendence over investing in shares or gold.

Gold isnt for safety - the price can be pretty volatile. 25% of your investments is much too high, I and many other investors dont hold any.

£6K is too small a sum to invest directly in shares except as part of a much larger portfolio.. The risk is that one company collapses. To keep the overall loss in such an event low I would suggest you should aim to have 15 different shares as a minimum. £400 per share would make the costs relatively high and involve you in hassle for very small gain. I would suggest £2K in a share as a minimum holding.

You dont want to be buying AIM shares directly at all. They are high risk and may be difficult to sell. You may look up the price and decide to sell but then find that there is no-one who wants to buy at anywhere near that price.

So you need to be thinking about funds for the possibly £8K you will be investing. All or most should be in a broadly based global fund. £2K for a bit of excitement seems reasonable. there are many funds that invest in small companies - Marlborough UK Microcap is an example which includes AIM shares.

Emperor2014

nickohorny wrote: »

2,000 in gold bullion for long term safety.

According to the Telegraph gold lost 30% of its value in 2013: "Gold price collapse is the worst for 30 years". I have a hunch it still has further to fall.

nickohorny

Thank you all for your kind help and advice. much appreciated.

To be completely honest I do not know much about funds, I understand the concept but I have only ever thought about investing in shares. It seems a bit overwhelming all that information I am not sure how to read or if I understand the fact sheets.

I will research more into it and try to get a better understanding as it seems a safer option for me.

One thing I am concerned about - is cost of being in a fund, I believe I would be continually paying for the service of a manager to run it, correct?
With investing in a fund, is it best I simply find one and put the majority of my money in it or like shares - pick a few different funds?

Linton

nickohorny wrote: »

Thank you all for your kind help and advice. much appreciated.

To be completely honest I do not know much about funds, I understand the concept but I have only ever thought about investing in shares. It seems a bit overwhelming all that information I am not sure how to read or if I understand the fact sheets.

I will research more into it and try to get a better understanding as it seems a safer option for me.

One thing I am concerned about - is cost of being in a fund, I believe I would be continually paying for the service of a manager to run it, correct?
With investing in a fund, is it best I simply find one and put the majority of my money in it or like shares - pick a few different funds?

The problem with a small investor buying shares is that shares are risky unless you hold a large number of different ones as just one failing would make a significant difference to the portfolio value. Also your portfolio would tend to be highly invested in the UK with little elsewhere, so diversification is also a problem. Funds typically invest in hundreds of shares and can cover anywhere in the world.

You are paying for the services of a manager, typically about 1% of the investment. The fund manager takes the money from the fund, there is no extra bill you have to pay. Published returns from funds take the fees into consideration. You can investigate what is available and what sort of returns have been achieved from https://www.trustnet.com and compare these with your experience of share investing.

If you are investing in funds my view is that you need to look at what the fund is invested in and make sure that you have a good spread of companies, countries, company sizes, and sectors of business. This info is in trustnet. A small investor may find it sensible just to invest in one fund where the manager ensures that an appropriate global balance is achieved and maintained. This could be supplemented by smaller fund holdings which invest in particular areas that you believe could perform exceptionally well. For example Small Companies and Biotech have provided high returns for some years.

nickohorny

Linton wrote: »

The problem with a small investor buying shares is that shares are risky unless you hold a large number of different ones as just one failing would make a significant difference to the portfolio value. Also your portfolio would tend to be highly invested in the UK with little elsewhere, so diversification is also a problem. Funds typically invest in hundreds of shares and can cover anywhere in the world.

You are paying for the services of a manager, typically about 1% of the investment. The fund manager takes the money from the fund, there is no extra bill you have to pay. Published returns from funds take the fees into consideration. You can investigate what is available and what sort of returns have been achieved from https://www.trustnet.com and compare these with your experience of share investing.

If you are investing in funds my view is that you need to look at what the fund is invested in and make sure that you have a good spread of companies, countries, company sizes, and sectors of business. This info is in trustnet. A small investor may find it sensible just to invest in one fund where the manager ensures that an appropriate global balance is achieved and maintained. This could be supplemented by smaller fund holdings which invest in particular areas that you believe could perform exceptionally well. For example Small Companies and Biotech have provided high returns for some years.

Thanks Linton, great help!

I will begin to look at investing my money into funds.
I enjoy the future excitement and thrill of share dealing, I know it is wrong for my investment purposes and I will not be doing anything stupid at all, but with all of my money in a fund it, well, is pretty boring i guess?, watching one fund grow..
- It is not as fun as watching a share price fluctuate and take off should that ever happen, the feeling of (hopefully) being right and growing my own portfolio.

I realise I do not have the capital to invest enough in shares to be able to sustain it suitably though now you have explained it, I would rather be safer with my money and look after it best I can.

Thanks